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February 10, 2016

Demand driven supply chain: key considerations for High-Tech industry

Supply chain innovations have helped many organizations to operate successfully at a global scale, cut down operational cost, bring dynamism and gain edge over competition. The 'Demand driven supply chain' (DDSC) is one such concept which brought the futuristic vision since its inception during last one decade. Many industry leading organizations have invested in transforming their supply chains into demand driven and observed numerous rational benefits. With the advent of global supply chain footprint, shorter product life cycles, dynamic market conditions, it becomes critical to invest in right DDSC approach which is specifically modelled for that industry.

What is DDSC?

Demand driven supply chain is based on old premise of building a network based on 'Pull system' and avoids inventory movement by Push methodology. As defined by Gartner, "a demand driven network is based on single sales forecast that drives entire supply chain; from suppliers' supplier to customer's customers". Traditional supply chains maintain inventory balances based on static forecast figures which may result in overstocking for some product-location combination and shortages and even stock-outs at other places. To counter this phenomenon various approaches are being used but many of them can cause 'Bull-Whip' effect in the extended supply chain. With the DDSC approach organization follow various measures to build accuracy in demand signals. Similarly they need to invest in supply side initiatives to build required dynamism in supply balancing.
 
High Tech Industry challenges:

Most of the high tech industry organizations face great deal of volatility in the business.
•    Usually they have short product life cycle, which means they should engineer and introduce products in market rapidly ahead of their competition. Building excess finished goods inventory is not advisable at the same time stock outs may result in losing market-share.
•    Most of the high-tech players have multi-echelon global supply chains. Many of them act as OEM (Original Equipment manufacturer) which have network of manufacturing partners and distributors spread across the globe.
•    They have different business models such as Made to Stock, Configure to Order, Pick to Order, Buy and Sell etc. Usually they follow postponement strategy and keep stock at the sub-assembly status.
•    Some critical components may have very high lead time and need specialized skills which need long term visibility of demand and good supplier relationships.
•    Usually inbound material movement and outbound distribution services are outsourced to 3PL and 4PL logistic service providers.

How technology can help enabling DDSC?

With the help of right process and technology organizations can stride for establishing DDSC in true sense. The strategies for DDSC can be broadly classified as Demand side initiatives and Supply side initiatives.
On the demand side
•    Inventory Balancing and Distribution requirement planning can help to mitigate risk of stock-outs and excess inventory in the downstream supply chain. Tools such as inventory optimizer and Distribution Requirement Planning helps with great deal of accuracy in balancing inventory.
•    Demand Signal repository: Organizations can tap the demand signal at the source of consumption such as POS (Point of Sale) devices, Order orchestration tools and use this demand signal repository to fine tune the forecasts.
•    Collaboration with down-stream channel partners with VMI or consigned inventory management can give accurate demand visibility and reduce bull-whip effect.

On the supply side;
•    Organizations can increase the planning frequency to get latest demand and supply picture and reduce information latency.
•    For intra-day demand-supply changes 'what-if scenario analysis' can prove a lot helpful. This can address supply requirements for hot demands, quantity or need by date changes to high priority demands. Also disruption in supply or logistic issues can be mitigated in timely manner.
•    Postponement is effective methodology where inventory is stored in semi-finished status and final assembly is done when firm orders are received.
 

Lead Time Constraint Impacting Customer Order Promising in Outsourced Manufacturing

Continuing from my previous blog, upon delving deeper into the lead time constraint aspect, we come upon certain aspects of the high tech industry that prima face indicate to concerns regarding incorrect or conservative lead time on the product and it's transit time to the customer.





Delivery Lead Time:

Delivery lead time specifies the transportation time required to deliver the product to the customer. Delivery lead time depends on the type of request customer places which can either be a request date to ship or request date to delivery at customer dock. This can include single or multiple legs of transportation trips depending on the proximity of the customer from the manufacturing or consolidation warehouse location. Typically in High-Tech industry majority of the production or assembly takes place in South East Asia however the customers and distribution warehouse and 3PL locations can be spread across the globe. Delivery lead time is a critical factor for accurate customer promising as the material availability date is calculated by offsetting the lead time from the customer request date to ensure the product is neither shipped early or late. High Tech complex OEM organization with matured transportation planning process often determine the best suited route considering transportation attribute like load, region, mode, method etc. to optimize the shipments. This would also mean that the shipment can pass through different regions, 3PLs which might have different holiday calendar and the planning has to be so accurately done that the hand-off between two regions or warehouses is done on a working day to ensure the truck doesn't stop.




Since both manufacturing and transportation operations in High-Tech is outsourced, imagine the cost avoidance of accurate transportation planning and determining shipping/arrival date considering accurate delivery lead time across the regions. Join our session to understand how we manage to marry both supply chain planning and transportation planning applications to optimize assembly and transportation cost and also ensuring high OTS attainment rate.

Product Lead Time:

•    Mismatch or incorrect lead time set-up also impacts the scheduling results. One of the examples is a case when an Item is setup as lead time based and there is no actual lead time value setup. To avoid this situation the planning time fence adds 1 additional biz day
•    Due to the many challenges of High -Tech industries, there is a need to fix or redefine extra lead time padding for the items for a specified period of time. This lead time will be added to the original lead-times. The padded Lead Time may be due to geographical, trade compliance reasons. Ex: In the month of December, logistics across the globe hit a rush and the extra lead time may come into picture.
•    Often there arises a need to lock the Lead time for a fixed period. This is needed to avoid discrepancies in the supply chain.


 

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